Las Vegas Sun

March 28, 2024

Station profit up 73%

Las Vegas neighborhood casino operator Station Casinos Inc. today reported a 73 percent increase in net income for the fourth quarter driven by moves to cut costs, shrink debt and improve performance margins at its locals' casinos.

The news comes as major Strip operators MGM MIRAGE and Mandalay Resort Group early this month significantly reduced their earnings estimates on lower-than-expected casino returns.

Station Casinos, Las Vegas' dominant operator of smaller, off-Strip casinos, has aimed to distance itself from the tourism woes faced by the Las Vegas Strip.

Today, the company said its same-store cash flow at its major Las Vegas casinos increased by 6 percent over the prior year's quarter.

Cash flow -- typically defined as earnings before interest, taxes, depreciation and amortization -- is a key indicator of casino performance and same-store growth is a measure of how much each property has expanded its business over the previous year.

The company earned $7.7 million during the fourth quarter, up from $4.5 million for the same period last year. On a per-share basis, earnings rose to 13 cents from 8 cents a year earlier.

Excluding certain non-recurring items, the company earned $10.9 million, or 18 cents per share for the quarter compared to 13 cents a year earlier -- in line with prevailing Wall Street estimates.

Non-recurring items for the quarter included $4.4 million for the loss on an early retirement of debt, $1.5 million related to ongoing patent litigation with slot club competitor Harrah's Entertainment Inc. and $900,000 of income related to the reversal of a previously-recorded reserve.

Wall Street analysts said today that the company's results would be received either neutrally or positively by investors, who have reduced their overall expectations for casino operators on concerns about a weakening U.S. economy.

"Given the tough resort economy in the locals' Las Vegas market right now, we think the Street could have even swallowed a weak quarter given the real excitement about Station Casinos centers on the California tribal management contract that opens in June," UBS Warburg analyst Robin Farley wrote in a research note to investors today.

Station Casinos also revealed details today on two initiatives that it expects will boost revenue.

The company expects to open its $215 million Thunder Valley Casino near Sacramento in June. The casino -- offering about 1,900 slot machines, roughly 100 table games as well as entertainment and dining amenities -- will be managed by the company and owned by the United Auburn Indian Community. The company began construction on the casino last quarter and also received approval from the National Indian Gaming Commission for a management agreement between the company and the tribe.

The agreement allows Station to manage the property for seven years in return for a fee equal to 24 percent of the project's cash flow.

Under an existing compact with the state, the tribe is able to offer 1,900 slot machines and avoid state taxes on casino revenue, executives said. Under new arrangements under consideration by Gov. Gray Davis, who is struggling to plug a budget deficit, tribes could offer additional slot machines in exchange for a cut of such revenues.

Station Chief Financial Officer Glenn Christenson said the company hasn't determined whether to add more machines but would weigh demand against cost.

The company also aims to roll out additional bonuses for local gamblers that belong to its "Boarding Pass" slot player loyalty club.

The effort marks a second phase in the card's bonus features, executives said. Last year, the company drew players to its casinos with offers of cash redeemed directly from slot machines.

"We are still in the early phases of this," Station Casinos President Lorenzo Fertitta said. "The orignal bonuses were primarily focused on reducing promotional expense (while) the next phase will be focused on generating revenue -- increasing the number of trips and increasing spend per trip."

Net revenue for the fourth quarter was $202 million, roughly flat with the prior year's quarter, the company said.

Cash flow, excluding the non-recurring items, was $60.6 million, a 12 percent increase compared to last year. Total cash flow was $60 million, up about 10 percent from the prior quarter.

"This disparity in revenue and (cash flow) changes highlights the tremendous amount of costs Station has removed from its operations as it continues to fine-tune its promotional, purchasing and labor expense structure," Bear, Stearns & Co. analyst Jason Ader wrote in a note to investors.

Net revenues for its major, wholly-owned casinos in Las Vegas -- excluding Green Valley Ranch Station Casino in Henderson -- totaled $196 million, down about 1 percent from a year ago. Cash flow for those properties rose about 6 percent, to $62.9 million.

Other operations, including Green Valley Ranch and its smaller Wild Wild West and Barley's casinos, yielded a 37 percent increase in net revenues, to $5.9 million. The company narrowed a cash flow loss from $4.8 million to $3 million during the period for these operations.

These figures are pulled down by corporate expenses and by the fact that they include Station's earnings from Green Valley Ranch rather than the property's total revenues, Christenson said.

Net revenues for Green Valley Ranch alone totaled $31.4 million for the quarter and cash flow totaled $11.8 million. The property opened in December 2001.

The Greenspun family, owner of the Las Vegas Sun, is Station's partner in the Green Valley Ranch and Barley's properties.

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